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Sunday, 11 March 2012

Reducing Railway Industry Fragmentation in the early 1900s

Christian Wolmar
has written frequently that one of the major causes of the railway industry's
current woes, in terms of operational costs and passengers fares being too high, is the fragmentation of the industry.
Britain's railways as they exist contain a myriad of private companies
interacting with each other within a web of complex working arrangements, most
of which force costs up. Indeed, it is accepted by most experts that separating the management of the trains from the tracks was a disaster.[1]

But
fragmentation within the railway industry isn't a new issue and was addressed by railway managers in the early 1900s. In the late 1890s the
railway industry's profits were depressed by a mix of poor management, competition,
increasing material costs and the growth of high volume low-margin traffic
(However, historians are divided on which of these factors played the biggest
role). Indeed, in 1885 the industry's operating ratio, which is expenditure
expressed as a proportion of revenue, stood at fifty-two per cent. By 1900
this had been driven up to sixty-two per cent.[2]

In response to their change in fortunes, railway companies attempted to reduce costs through numerous
means in the first years of the 1900s; more efficient track maintenance,
better locomotive designs, new technologies and improved goods operation. Yet,
despite these vigorous efforts to improve how they functioned,
inter-company rivalry and duplicated services remained one of the most serious and
costly issues for industry leaders. Between 1870 and 1900 the railway companies of
Britain, of which there over a hundred, unsuccessfully sunk resources and capital into competing for market
share on certain routes and at cities which were served by more than one company. For Example, the Great Western and London and South Western Railways had a protracted battle in the West of England, both in terms of the services they provided and through line building to gain territory. But such competition only served to depress profits, not
improve them.

Therefore, late
in the first decade of the twentieth century railway companies came together to
promote economical working, eliminate competition, pool resources and
ultimately reduce overheads. While outright mergers were actively resisted by
government, as they would hand companies regional monopolies, railway directors and managers
worked around this objection by forming 'working unions'. In late 1907 the
Great Northern and Great Central Railways announced an alliance in which they
pooled receipts and the management of all rolling stock, lines and works were placed under the
remit of a joint committee. It was an arrangement akin to amalgamation,
however, it just wasn't a legal union.

Other companies
soon followed suit. In June 1908 the London and North Western and Midland
Railways produced a less comprehensive scheme, where all receipts, except those
from coal and coke traffic, were pooled, competitive capital expenditure was ceased and
cooperative and economical train operations were sought. Indeed, this had
considerable success in reducing these two companies' operational expenses. The
Lancashire and Yorkshire Railway joined the agreement in 1909. Furthermore,
early in 1909 the Caledonian and North British Railways drew up a very similar
agreement. Lastly, in August 1910, after nearly a year and a half of negotiation,
the Great Western and London and South Western Railways came to terms. [3]

While the
fragmentation of the modern railway industry is different in many ways to that
which existed immediately after 1900, there is no doubt that in the period knowledgeable industry leaders felt a sensible way to reduce their railway's operational and capital costs was to cooperate.
Indeed, the particular success of the London and North Western and Midland Railway
in reducing these forms of expenditure through unification, is a testament to the
idea that when it comes to railways, collaboration, not fragmentation, can be
preferable.

-----

[1]
Wolmar, Christian, "Fragmentation is the
problem, not the solution", Christian Wolmar's Website,
19 May 2011

I think that perhaps the word 'cartel' is a bit strong, as the agreements didn't cover every aspect of traffic. What there was was a pooling agreement on the east and west coast main lines where seven companies cooperated to divide receipts from Anglo-Scottish traffic. Indeed, after smaller pooling arrangements had been established by Capt. Mark Huish, the London and North Western Railway's General Manager, to protect that company's trade after the opening of the Great Northern Railway's link between London and York, the 1856 agreement covered more trade. It included all traffic to the north of Scotland and divided all receipts from traffic between London and Scotland, except those from Mail and Coal. Nevertheless, it fell apart after only three years because of changes in the national network and the 'competitive' routes to the north. The companies were as follows:-

East coast - Great Northern, North Easter and North BritishWest coast - London and North western, Lancaster and Carlisle and Caledonean

It should also be pointed out that after 1859 other, smaller pools were established between companies at certain cities and on certain lines.

In a paper of mine on Sherlock Holmes, I've included lots of railways material. It was that paper that led to my first comment about the working union between the SER and the LC&DR. In that paper, I've also included information about a pooling agreement in 1865 betweeen the SER and the LC&DR that preceded the working union.

The paper's available from here: http://papers.ssrn.com/abstract=1337347

Postgraduate Diploma

From September 2014 I will be running through the University of York's Centre for Lifelong Learning an on-line Postgraduate Diploma in Railway Studies. The course runs for two years and will provide students with a better understanding of how academics have investigated the social, cultural, political, business, economic, and technological aspects of British railway history between 1825 and 2002. For more information please click here.

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Welcome

Hello! Welcome to TurnipRail, a blog about Britain's railway pasts. This blog has a number of aims. Firstly, I wish to spread my PhD research (on the management of the London and South Western Railway, 1870-1910) to beyond the university's confines, as well as discuss elements of railway history. Secondly, I hope that in the process I will entertain everyone, and lastly, I hope endeavour to promote myself as a writer of history.

On this site you will not find anything that can be called 'enthusiast material.' After all, that is more than well catered for on the web. Rather, this site will discuss aspects of Britain's railway from a social, economic, business and technological perspective.

Best Wishes

David Turner

P.S. I have another site - Turnip Rail's Waiting Room - where I post Bits and Bobs I find in the course of my research. It can be found HERE